Classic Throwbacks for Your Portfolio

 | Sep 09, 2013 | 2:00 PM EDT
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I got to watch a full slate of football games in between posting for the Open House this weekend. It is amazing how much the game has changed over the past three decades -- the NFL has certainly become a pass-happy league. Long gone are the days of John Riggins and the Hogs and Three Yards and A Cloud of Dust. Even mid-tier quarterbacks now routinely throw for 300 yards or more in a single game.

Call me nostalgic, but I miss the days when good teams would consistently exert their dominance by getting 4, 5 or 6 yards a crack on the ground while keeping the other team off the field. Maybe it's because this type of play better fits my investment style. While others choose to go with the high-fliers that have little earnings but possess a great story -- like Tesla Motors (TSLA) -- I like the stocks of companies that are incrementally and consistently moving the chains.

These companies pay good dividends, have reasonable valuations and are focused on growing earnings while they improve their business models. Here are two of these "throwbacks" that I currently have in my portfolio.

General Electric (GE) continues to transform itself into a pure industrial play, having primarily been a financial behemoth prior the 2008 crisis. The company has sold off its media businesses, and it has shrunk its balance sheet and exposure to the financial sector. The next big step in this direction will be when it spins off its U.S. consumer-lending operations of GE Capital. That's rumored to be in the pipeline for sometime in 2014.

I would also look for GE to make further acquisitions in the oil-services business. It bought lift maker Lufkin Industries (LUFK) earlier in the year for just less than $4 billion. I would expect similar-sized purchases as the company beefs up its presence in the sector. In the years ahead, General Electric's main business lines should consist of big-ticket medical and industrial goods (such as jet engines and locomotives), as well as a growing oil-services business.

GE stock currently sells for just under 13x forward earnings. This is roughly in between the valuations investors are currently putting on the financial sector and industrials -- which are currently at 10x and 16x forward earnings, respectively. As GE continues to pare back its contribution from its financial side and gets an increasingly higher ratio of its earnings and revenue from its industrial businesses, I would look for the stock to be valued more like a pure play industrial concern. GE also pays a 3.3% dividend yield as one waits for this transformation to continue.

ConocoPhillips (COP) is my favorite among the very large U.S.-based energy plays, a category that includes Exxon Mobil (XOM) and Chevron (CVX). Conoco has recently spun off its retail and refinery businesses. It also has sold some overseas assets to concentrate on growing production from energy-resurgent North America.

I like the newfound focus of ConocoPhillips over the past year and a half. It has lowered its geopolitical risk and has rid itself of low-margin business in order to become a pure play exploration-and-production concern while hitching its fate to the ongoing U.S. energy boom.

In addition, ConocoPhillips shares yield at 4% and are reasonably priced at just 11x forward earnings. By a better valuation measure, the stock goes for less than 5x operating cash flow. Finally, the company is getting an increasing amount of overall production from oil and liquids, and it should be able to grow production in the 3%-to-5% range over the next several years, driven by high-margin U.S. production growth.



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